Bloomberg News

International Demand for U.S. Assets Rises on Europe Crisis

July 17, 2012

International demand for U.S. financial assets rose in May as investors sought shelter from the debt crisis in Europe.

Net buying of long-term equities, notes and bonds totaled $55 billion during the month, compared with net purchases of $27.2 billion in April, the Treasury Department said today in Washington. Economists surveyed by Bloomberg News projected net buying of $41.3 billion of long-term assets, according to the median estimate.

Including short-term securities such as stock swaps, foreigners bought a net $101.7 billion in May, compared with net selling of $8.2 billion the previous month.

“The euro zone troubles had not yet reached their zenith in May and the dollar’s surge against the euro is a sign that global investors shifted assets into the safe haven of U.S. Treasuries and other securities,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said by e-mail before today’s report. “The U.S. despite its slower economic growth remains an oasis of safety for investors seeking to keep their portfolio’s free from danger.”

Maintained Attraction

U.S. assets have maintained their attraction as European Union leaders grapple with a financial crisis that has pushed up Italian borrowing costs while the euro area bails out Spanish banks. China’s growth slowed for a sixth quarter to the weakest pace since the global financial crisis, while the International Monetary Fund said the world economy will increase 3.9 percent next year, down from 4.1 percent projected in April.

Estimates of foreign purchases of long-term U.S. assets in May ranged from net buying of $5 billion to $50 billion, according to four economists surveyed by Bloomberg before the report.

“A flight to safe assets led to a collapse of yields on government bonds in the U.S., Germany, and Switzerland, and pushed the dollar to a 20 month high against major currencies,” the IMF said yesterday in a report on global financial stability.

The U.S. has avoided the turbulence rocking Europe, where five nations have sought bailouts as their borrowing costs soared because investors boycotted their bonds. Instead, they have sought U.S. assets as a haven because of the dollar’s status as the world’s primary reserve currency, pushing note yields to record lows even though the amount of public debt outstanding has grown to $15.9 trillion from less than $9 trillion in 2007.

China Biggest

China remained the biggest foreign owner of U.S. Treasuries in May after its holdings rose $5.2 billion to $1.17 trillion, according to the Treasury.

Hong Kong, counted separately from China, raised its holdings of Treasuries by $400 million to $145.4 billion.

International net purchases of U.S. Treasuries rose to $45.9 billion in May from $38.7 billion the month before.

The Treasury Department’s data capture international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies.

The Treasury said in February it was shifting from a transaction-based survey to a custodial survey to keep track of foreigners’ holdings. As a result, month-to-month comparisons are not comparable.

To contact the reporter on this story: Meera Louis in Washington at mlouis1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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